Housing supply struggles as investors return to Phoenix

The Phoenix housing market was not only the poster child for a reckless, investor-driven housing crash, it was also the same for a more calculated, investor-driven recovery.

Rampant foreclosures slashed home prices in half, but investor demand for those distressed properties sent them right back up again.

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Phoenix, Arizona skyline

By the start of 2014, investors had essentially priced themselves out of Phoenix, and so they moved on. Median prices rose just about 5 percent through 2014, from $200,000 to $210,990, and sales fell, according to Mike Orr, real estate analyst with the W.P. Carey School of Business at Arizona State University.

"Prices in the Phoenix-area housing market remained relatively flat in 2014, when you take into account the general level of inflation," Orr wrote in a recent report. "When you look at the change in the mix of sales—with more expensive luxury homes being sold—there is not much real upward price momentum."

The fall in sales masked the fact that supply in Phoenix was getting ever tighter. That tight supply kept prices from falling. Now, investors may be returning to the market again, which could overwhelm the current supply and push prices significantly higher again, according to Orr.

They won't find the same landscape, however. Foreclosures are significantly lower than they were during the crash and even below long-term averages for the area. Investors are now buying nondistressed homes. They accounted for 16 percent of November 2014 buyers, the highest level since last May.

"While investor purchases are still below the peak levels we saw in the Phoenix area after the housing crash, the levels have started to recover over the last four months," Orr wrote. "However, we may see fewer international buyers in the market now because of the recent dramatic rise in the value of the dollar against most foreign currencies."